IT management, distilled: Part 1

Digital technology in a business environment

The economic realm as we know it today is remarkably different from the one we knew a couple of decades ago. Today, data is worth more then oil, our computers (big & small) give us access to a limitless knowledge-base and the organization of enterprises would simply collapse without the plethora of digital services they are relying on. Today, no organization could exist without the need of an information system of some sorts. IT operates at such a high level, it is accessible for everyone, old and young, rich and poor, etc. The fact that the internet penetration rate is so high, gave advertisers the possibility to delve into a new gold mine, quickly giving rise to what is now called Big Tech, thriving on the ones and zeroes that represent your digital alter-ego.

However, information technology is more than high-tech and useful gadgets. It is a refined craft which requires talent. It is this digital talented persona many companies are so eager to recruit in the hope that they will bring prosperity to their business and make it future-proof. One should be careful though, not to confuse software development with the development of a digital business. As these should be regarded as two completely different tasks with their own intrinsic responsibilities. To me, it is not clear what a digital talented person actually represents, where do you draw the line exactly? When you have a data leak or not enough security measures in place and cause a major breach, does this also fall in the domain of the digital talented? Perhaps not :)

Information technology, economic growth & lurking demons

Although one could argue that the economic growth of the past decade is due to many factors, research shows the productivity of capitalism in the West is stagnating [1] and therefore (at least a significant) part of the growth must be allocated to the digital automation. It is also fair to state that IT is a benefactor for the world in that it creates a lot of welfare. Even back in 1996, a study [2] concluded the following results:

Because of competition, firms may be unable to capture the full benefits of the value they create. This undermines researchers’ attempts to determine IT value by estimating its contribution to industry productivity or to company profits and revenues. As an alternative approach researchers estimate the consumers’ surplus from IT investments by integrating the area under the demand curve for IT. This methodology does not directly address the question of whether managers and consumers are purchasing the optimal quantity of IT, but rather assumes their revealed willingness-to-pay for IT accurately reflects their valuations. … According to our estimates, which are likely to be conservative, IT investments generate approximately three times their cost in value for consumers.

Despite the many wonders of IT, there are some demons many companies should be aware of. [3] One of these demons, as layed out in a previous article, is the commodization of software. Software is important in the operations of many businesses, yet its economic value has decreased. Another demon is that, in the increasingly competitive landscape of digital services, protecting the software with IP rights doesn’t garantee a foothold in the market share. This is mainly because the plethora of tools and technologies are changing at such a fast pace, software needs constant refactoring to stay relevant. Thus a large static, IP protected bundle of magic scrolls with code will not be the holy grail to your business. Also, since software is almost always built upon other dependencies, hardening it with Intellectual Property Rights may prove difficult. Yet another demon is the valuation of IT and software-oriented business, it often makes more sense to valuate a software company in function of its development team rather than in function of the written code. This is, in fact, to be observed when tech giants buy small software startups, just to absorb the in-house knowledge such teams often represent, rather than the product they had designed at the time.

Despite the presence of these demons, proactive organizations often do succeed in leveraging IT before there competitors do. It is this aggressive innovation strategy that left companies like Amazon, Google and Microsoft with a significant competetive advantage. Therefore, the management of information technology is still essential for all organizations. As a computer/data scientist I’m happy to have studied the proper strategic and management aspects of my field. I will try to share my knowledge in a series of articles which will be published every two weeks. The articles will have a focus on questions like: “How should we build reliable software systems which fit our business needs? How should we organize our company so that digital services are delivered efficiently? How should data be properly managed? How could I leverage IT in my business cost-effectively? How would I scale my startup through the tactful use of IT frameworks?”.

I will try to keep the article in a readable format without tapping to much in the Computer Science lingo. This series is aimed for practically anyone who is interested in the outlined topics, and should be particularly useful for entrepreneurs, business consultants, data scientists, startup leaders and managers.

References

[1] Understanding the productivity paradox, October 2017, Deloitte, https://www2.deloitte.com/us/en/insights/economy/behind-the-numbers/decoding-declining-stagnant-productivity-growth.html

[2] Brynjolfsson, Erik. “The Contribution of Information Technology to Consumer Welfare.” Information Systems Research, vol. 7, no. 3, 1996, pp. 281–300. JSTOR, www.jstor.org/stable/23010985.

[3] Hyperscale and Microcare is an inspirational book which I use as a reference work. It overlaps partly with my future material, but is a more specialized read, which focuses on startups and scaleups working on SaaS & Digital products.